QXL Ricardo, Europe's top online auction firm, has revealed it is still in the red, and warned of rocky trading conditions to come.

The company, which operates in 12 European countries, has announced a trading loss of �49.4m for the year to the end of March.

And it said that hardships involved in adopting the fee-based strategy followed by traditional auction firms, in favour of a retail-related business plan, "could impact our trading in the shorter term".

"We are aware that a number of challenges remain before us," the company said in a profits statement on Friday.

"Most significantly, we need to continue the rollout of success, listing and other fee structures."

The change has seen the firm earn revenues through charging customers commission on sales, rather than, as under QXL's original plans, itself buying items for auctioning through the site.

"There is clearly far less risk involved in a commission based strategy, as you are not exposed to the complications involved in holding stock," company spokeswoman Annabel Dangerfield told BBC News Online.

Shares rise

Investors took heart, however, from an improvement in the firm's recent trading performance, taking QXL Ricardo stock more than one third higher at one point.

Losses between January and March were, at �9.7m, 20% lower than in the quarter before.

And, in a separate announcement, the firm outlined a tie-up with Microsoft which will allow QXL services to be accessed through devices such as digital television and palmtop computers capable of allowing internet access.

Microsoft, in return, will flag up QXL services on the software giant's forthcoming operating system Windows XP, and will offer technological help to ensure other developments are exploited.

"This is a significant partnership for QXL," QXL Ricardo chief executive Jim Rose said.

"By bringing together two leading e-commerce and technology brands, we are confident that we can better satisfy our customers' ever-expanding needs."

QXL Ricardo shares stood 1.75p, or 26%, up at 8.25p in lunchtime trade in London.

The shares surged above 740p in March 2000, at the height of the boom in dot.com shares.

'Excellent position'

The number of items traded by QXL Ricardo between January and March fell to 8.2m, 6% down on the last three months of 2000.

But the firm, formed through the merger of the UK's QXL with Germany Ricardo last year, said the rise largely reflected its switch towards a commission-based income strategy.

"Since the introduction of fees, we have seen an increase in the quality of items listed, and in the percentage of items listed that sell," Friday's profits briefing said.

The firm claimed 2.9 million members at the end of March, 11% up on the end of 2000.

Mr Rose said: "We are in an excellent position to maintain focus on execution, and progress our path to profitability."